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Q. A, B, and C were partners in a firm sharing profits in the ratio of 5:3:2. The Balance Sheet as of 31.3.2023 was as follows:

\begin{tabular}{|c|c|c|c|}
\hline
Liabilities & ₹ & Assets & ₹ \\
\hline
Creditors & 12,000 & Building & 20,000 \\
\hline
Reserves & 6,000 & Plant and Machinery & 16,000 \\
\hline
A's Capital & 24,000 & Stock & 5,100 \\
\hline
B's Capital & 12,000 & Debtors & 6,000 \\
\hline
C's Capital & 8,000 & Cash at Bank & 6,900 \\
\hline
& & Advertisement Suspense & 8,000 \\
\hline
& 62,000 & & 62,000 \\
\hline
\end{tabular}

A died on 30.9.2023, and B and C decided to share future profits in the ratio of 7:3. Under the partnership agreement, the executors of a deceased partner were entitled to:

(a) Amount standing to the credit of the partner's capital account.
(b) Interest on capital at 12% per annum.
(c) Share of goodwill on the basis of four years' purchase of the last three years' average profit.
(d) Share of profit from the closing of the last financial year to the date of death on the basis of last year's profit.

Profits for the years 2021, 2022, and 2023 were ₹8,000, ₹12,000, and ₹7,000 respectively.

Prepare A's Capital account to be rendered to his executors.

[Ans. Amount due to A's Executors: ₹44,190]



Answer :

GinnyAnswer
Let's solve this problem step-by-step.

### Step 1: Calculate the Amount Standing to the Credit of Partner's Capital Account

The amount standing to the credit of partner A's capital account is clearly given in the balance sheet. This amount is:

[tex]\[ ₹ 24,000 \][/tex]

### Step 2: Calculate the Interest on Capital

Interest on capital is calculated from the start of the financial year 31.3.2023 to the date of death 30.9.2023, which is a period of 184 days (from April to September).

The interest rate is 12% per annum, so we need to calculate the interest for 184 days.

[tex]\[ \text{Interest on Capital} = \left( A \text{ initial capital} \times \frac{\text{Interest Rate per annum}}{365} \times \text{Number of days} \right) \][/tex]

[tex]\[ \text{Interest on Capital} = 24000 \times 0.12 \times \frac{184}{365} \][/tex]

This results in:

[tex]\[ ₹ 1,443.95 \][/tex]

### Step 3: Calculate the Goodwill Share

Goodwill is to be calculated on the basis of four years purchase of the last three years' average profit.

Profits for the years 2021, 2022, and 2023 are:

[tex]\[ ₹ 8,000, ₹ 12,000, ₹ 7,000 \][/tex]

Average profit:

[tex]\[ \text{Average Profit} = \frac{8000 + 12000 + 7000}{3} = 9000 \][/tex]

The total value of goodwill is then:

[tex]\[ \text{Goodwill} = \text{Average Profit} \times 4 \][/tex]

[tex]\[ \text{Goodwill} = 9000 \times 4 = 36000 \][/tex]

A’s share of goodwill (since A was entitled to 50% based on the old profit-sharing ratio):

[tex]\[ \text{Goodwill Share} = \text{Goodwill} \times \frac{5}{10} \][/tex]

[tex]\[ \text{Goodwill Share} = 36000 \times 0.5 = ₹ 18,000 \][/tex]

### Step 4: Calculate A’s Share of Profit till the Date of Death

The share of profit is to be calculated from the closing of the last financial year to the date of death based on the last year’s profit.

Last year’s profit was ₹ 7,000. To find the share for 184 days:

[tex]\[ \text{Share of Profit} = \left( \text{Last Year Profit} \times \frac{184}{365} \right) \times \frac{5}{10} \][/tex]

[tex]\[ \text{Share of Profit} = (7000 \times \frac{184}{365}) \times 0.5 \][/tex]

This results in:

[tex]\[ ₹ 1,754.79 \][/tex]

### Step 5: Total Amount Due to A's Executors

Finally, sum up all the amounts calculated:

[tex]\[ \text{Total Amount Due} = \text{Amount standing to the credit of partner's capital account} + \text{Interest on Capital} + \text{Goodwill Share} + \text{Share of Profit} \][/tex]

[tex]\[ \text{Total Amount Due} = 24000 + 1443.95 + 18000 + 1754.79 = ₹ 45,198.74 \][/tex]

So, the amount due to A's executors is:

[tex]\[ ₹ 45,198.74 \][/tex]

Thus, the step-by-step solution shows that you need to prepare ₹ 45,198.74 to render to A's executors.

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